Saudi Arabia reportedly has been forced to store much of its excess crude oil in supertankers at sea.
About 80 supertankers out of 750 world-wide are now used to store oil rather than transport it, Saudi officials told the Wall Street Journal.
The amount of oil in storage at sea rose by 21 million barrels to 147.6 million in the week to April 19, according to commodities-data provider Kpler, making up the bulk of the stocks increase globally.
As the global oil-price crash has evaporated consumer demand, the world’s top oil exporter is trying to manage the repercussions of its monthlong price war with Russia, the Journal explained.
Saudi Arabia decided in March to flood oil markets with cheap oil just as the coronavirus pandemic shut down major economies and led to a collapse in oil demand, the Journal explained.
“As demand dried up, many of the world’s producers continued to pump at normal levels, filling storage tanks and ships with unsold crude,” the Journal said.
OPEC is debating production cuts that would go beyond the historic oil pact they agreed to with the U.S. and Russia
“The kingdom is now facing a situation where they may have to shut parts in their production, likely from Ghawar and other fields because they don’t have buyers,” said a senior Aramco executive familiar with the matter. “The fact is buyers don’t have storage so regardless of whatever level of output you want, there won’t be storage for it,” he said.
Meanwhile, the meltdown in oil markets is turning back the economic clock for Saudi Arabia, putting it on track for the deepest contraction in two decades.
Already under lockdown to contain the spread of the coronavirus pandemic, the world’s largest crude exporter is bracing for a second impact from the oil rout and unprecedented production cuts negotiated by OPEC and its allies, Bloomberg explained.
Both will slash government revenue, and in turn derail a fragile economic recovery. Brent crude traded at under $19 a barrel on Tuesday -- a quarter of the level Saudi Arabia needs to balance its budget -- leaving officials with limited options to offset economic pain without crippling public finances.
“This has changed everything,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “So much of the recent recovery was based on the fact that the oil price had been above $50-$60, providing support to economic activity, and that’s just been decimated.”
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